union pacific r. co. v. united states, 99 u.s. 402 (1879)

8/17/2019 Union Pacific R. Co. v. United States, 99 U.S. 402 (1879)

1/32

99 U.S. 402

25 L.Ed. 274

UNION PACIFIC RAILROAD COMPANY

v.

UNITED STATES.

October Term, 1878

1 APPEAL from the Court of Claims.

2 This is a suit by the Union Pacific Railroad Company to recover compensation

for services rendered to the United States prior to 1874, and during a portion of

that year 1874, and the whole of the year 1875. A counter-claim is set up for

five per cent of the net earnings of the company, under the provision of the

sixth section of the act of July, 1, 1862 (12 Stat. 489), that 'after the said road is

completed, until said bonds and interest are paid, at least five per centum of the

net earnings of said road shall also be annually applied to the payment thereof.'

The United States alleges that the road was completed on the 6th of November,

1869, and that since that time a large amount of net earnings has been realized

by the company, which it has failed to pay or apply to the said bonds. The

company denies this, and alleges that its road was not finished until Oct. 1,

1874, and that it has not realized any net earnings in any year, since either the

6th of November, 1869, or the 1st of October, 1874; and denies that it was its

duty to pay to the United States annually any money whatever, as and for five

per cent upon its net earnings, to be applied in the aforesaid.

3 The Court of Claims decided that the road was completed on the 6th of

November, 1869, and that the company did, after that period, annually realize

net earnings to a large amount, for the six years from Nov. 6, 1869, to Nov. 6,

1875, amounting in the aggregate to the sum of $28,052,045.67; and that five

per cent thereof, to wit, the sum of $1,402,602.28, was payable to the

government; whilst one-half of the compensation due for the services rendered

by the company to the government, for the period covered by the petition,

amounted to only $593,627.10; and, therefore, that the government was entitled

to recover from the company the difference between these two sums,

amounting to the sum of $808,975.18. From this judgment the company

appealed.

4 So much of the eighteenth finding by the Court of Claims as is referred to and


2/32

A.—EARNINGS.

Nov. 6, 1869, to Nov. 6, 1870, to Nov. 6,1871, to

Nov. 5, 1870. Nov. 5, 1871. Nov. 5, 1872.

Nov. 6, 1872, to Nov. 6, 1873 Nov. 6,1874, to

Nov. 5, 1873. Nov. 5, 1874. Nov. 5, 1875.

commented on in the opinion of the court is as follows:——

5

6

7

8 7. Company freight earnings $482,387.43 $362,414.56 $403,591.90

9 12. Miscellaneous 116,300.14 94,610.20 112,920.09

10

11

12 7. Company freight earnin $465,734.02 $506,698.53 $657,641.92

13 12. Miscellaneous 140,039.31 218,942.15 166.696.94 B.—EXPENDITURES.

14 Nov. 6, 1869, Nov. 6, 1870,

15 to to

16 Nov. 5, 1870. Nov. 5, 1871.

1. Conducting transportation

17 expenses $829,771.15 $671,194.53

18 2. Motive-power expenses 1,778,601.44 1,229,048.51

3. Maintenance of cars

19 expenses 608,622.90 302,225.09

4. Maintenance of way

20 expenses 1,403,090.28 995,683.49


3/32

5. General expenses

21 (including taxes) 445,119.88 397,651.07

6. Ferry expenses 54,714.88

7. Deficiency in fuel

22 and material account 75,577.54

8. Legal expenses 85,508.81 48,807.41

9. United State revenue

23 stamps 6,639.32 926.02

10. Salary account 16,335.90 53,522.39

11. Government directors 3,655.30 3,115.00

12. Government

24 commissioners 2,391.15

13. Expense account 26,057.18 24,241.41

14. Telegraph earnings

25 refunded

15. Omaha bridge, expenses

26 of operating

16. Car-service

17. Discount and interest


4/32

27 on floating debt 409,668.66 188,136.73

18. Expenses of land and

28 town-lot departments 41,524.47 60,824.89

19. Taxes on lands and

29 town lots 35,778.90 85,105.49

30 20. Interest on first-

31 mortgage bonds 2,015,326.28 1,715,200.96

32 21. Interest on land-

33 grant bonds 553,947.91 601,647.34

22. Interest on income

34 bonds 673,238.41 882,306.95

35 23. Interest on sinking-

36 fund bonds

24. Interest on Omaha

37 bridge bonds

25. Premium on gold to

38 pay coupons 117,569.84

26. Construction of Omaha

39 bridge


5/32

27. Expenditures for

40 station building

41 shops, and fixtures,

42 &c, as per statement

43 attached 896,977.03 66,849.73 28. Requirements of

44 sinking-funds for

45 the redemption of

46 funded debts:

Omaha bridge

47 bonds

Sinking-fund

48 mortgage bonds

29. Premium on Omaha

49 bridge bonds

50 redeemed

30. United States

51 interest half

52 transportation

53 accounts charged


6/32

Nov. 6, 1872, to Nov. 6, 1973, to

Nov. 6, 1874, to

Nov. 5,1873 Nov. 6, 1874 Nov. 5, 1875

54during the year 324,697.40 527,799.06

55 Total $10,287,954.25 $7,942,755.88 DETAIL OF EXPENDITURES FOR

STATION BUILDINGS, &c., CONSTITUTING ITEM 27 ABOVE.

56 ----------

57 Nov. 6, 1869, to Nov. 6, 1870, to Nov. 6, 1871, to Nov. 6, 1872, to o

58 Nov. 5, 1870. Nov. 5, 1871. Nov. 5, 1872. Nov. 5, 1873. Nov. Nov. 6, 1873, t5,

1874.

59 1. Station buildings $249,384.74 $48,286.40 $119,795.14 $14,580 .81

60 2. Shops and fixtures 40,618.27 94,855.51 106,067.83 2,744.02 $1,718.32 ------

--------

61 3. Equipment 109,933.18 47,598.03 8,380.72 93,213.18

62 4. Government commissioners 91.80 proper to be deducted from 'gross

earnings' in order to arrive at 'net earnings.'

63 1. Tenement-houses and hotels $1,659.96 $21,229.53

64 2. New station-buildings $6,909.98 18,146.77 78,589.57

65 3. Engine-equipment 25,398.69 63,277.70

66 4. Tanks and water-works 734.99 12,450.13

67 5. Car equipment 3,600.00 206,930.36

68 6. Laramie rolling-mills 43,716.01 149,859.30


7/32

69 Item 13, 'expense account,' is subject to be reduced by the following amounts in

case such outlays are regarded as not proper to be deducted from 'gross

earnings' in order to arrive at 'net earnings;' viz., In the year, Nov. 6, 1869, to

Nov. 5, 1870, expenses relating to an issue of bonds, $10,339.76; March 13,

1871, cost of a plate for the bridge bonds, $1,500; June 5, 1874, and expense

relating to the issue of sinking-fund bonds, $6,579.10.

70 The disputed expenditures in items 1, 2, 3, and 4 were for new construction.

Item 27 was also for new construction.

71 Item 16 was for the use of the cars of other companies.

72 Items 17, 20, 21, 22, 23, 24, and 25 show payments of interest on debts.

73 Items 18 and 19 show payments made on account of the land department of the

company's business.

74 Item 26 shows payments in the construction of the Omaha bridge above the

amounts received from the sale of the mortgage bonds secured by it.

75 Items 28 and 29 show-expenditures made for a sinking-fund for the redemption

of the company's debt.

76 Item 30 shows an assumed payment of a portion of the interest on the

government subsidy bonds by the application to it of half the government

transportation account.

77 Mr. Sidney Bartlett for the appellant.

78 The Attorney-General and Mr. Joseph K. McCammon, contra.

79 MR. JUSTICE BRADLEY, after stating the case, delivered the opinion of the

court.

80 This case is in some respects supplemental to that of United States v. Union

Pacific Railroad Co., 91 U. S. 72. That was a suit brought in the Court of

Claims, by the company, to recover one-half of the compensation due to it for services rendered to the government between the dates of February, 1871, and

February, 1874, against which claim the United States set up a counter-claim

for the interest which it had paid on the subsidy bonds advanced to the


8/32

company. This court held that, by the terms of the acts of Congress granting

said subsidies, the company was not required to pay the interest on said bonds

until the maturity of the principal thereof; and therefore the counter-claim of

the government was overruled. The present case arises upon a like suit brought

by the company in the Court of Claims for the recovery of one-half of the

compensation due to it for services rendered to the government during the

remainder of the year 1874 and the whole of the year 1875, including certainservices performed prior to 1874, not included in the first suit.

81 The general history of the legislation of Congress in reference to the Union

Pacific Railroad Company and the associated enterprises, and of the policy of

the government respecting the same, is fully stated in our opinion in the former

case, and need not be repeated here. We shall only advert to the several acts,

and to the proceedings and negotiations which have taken place between the

parties, so far as may be necessary to an understanding of the specific questionswhich are raised in this suit. The facts are fully set forth by the Court of Claims

in its findings. Three principal questions are raised by the acts of Congress and

the facts found by the court, which it is necessary for us to determine.

82 First , When was the road completed?

83 Secondly, What is included in net earnings?

84 Thirdly, How and under what conditions are they to be paid?

85 I. First, as to the completion of the road.

86 In one sense, a railroad is never completed. There is never, or hardly ever, a

time when something more cannot be done, and is not done, to render the most

perfect road more complete than it was before. This fact is well exemplified bythe history of the early railroads of the country. At first, many of them were

constructed with a flat rail, or iron bar, laid on wooden string-pieces, resulting

in what was known, in former times, as snake-heads—the bars becoming loose,

and curving up in such a manner as to be caught by the cars, and forced through

the floors amongst the passengers. Then came the T rail; and finally the H rail,

which itself passed through many successive improvements. Finally, steel rails

in the place of iron rails have been adopted as the most perfect, durable, safe,

and economical rails on extensive lines of road. Bridges were first made of wood, then of stone, then of stone and iron. Grades originally crossed, and, in

most cases, do still cross, highways and other roads on the same level. The

most improved plan is to have them, by means of bridges, pass over, or under,


9/32

intersecting roads. A single track is all that is deemed necessary to begin with;

but now, no railroad of any pretensions is considered perfect until it has at least

a double track. Depots and station-houses are at first mere sheds, which are

deemed sufficient to answer the purpose of business. These are succeeded, as

the means of the company admit, by commodious station and freight houses, of

permanent and ornamental structure. And so the process of improvement goes

on; so that it is often a nice question to determine what is meant by a complete,first-class railroad; and if a question of right or obligation between parties

depends upon the completion of such a structure, courts are obliged to spell out,

from the circumstances of the case, and the language and acts of the parties,

what they mean when they use such terms.

87 In the present case, we have for our guidance several clauses in the charter of

the Union Pacific Railroad Company (the act of 1862), in which the terms

referred to are used, as well as the acts of the parties in reference thereto. Oneof these clauses is in the fourth section of the act, which contains an

engagement on the part of the government to grant certain sections of land to

the company on the completion of a certain number of miles of its road. The

third section having granted to the company every alternate section of the

public land, designated by odd numbers, to the amount of five alternate sections

per mile on each side of the railroad, on the line thereof, and within the limits of

ten miles, not otherwise disposed of by the United States, the fourth section

proceeds as follows:—— 'SECT. 4. That whenever said company shall havecompleted forty consecutive miles of any portion of said railroad and telegraph

line, ready for the service contemplated by this act, and supplied with all

necessary drains, culverts, viaducts, crossings, sidings, bridges, turnouts,

watering-places, depots, equipments, furniture, and all other appurtenances of a

first-class railroad, the rails and all the other iron used in the construction and

equipment of said road to be American manufacture of the best quality, the

President of the United States shall appoint three commissioners to examine the

same and report to him in relation thereto; and if it shall appear to him that fortyconsecutive miles of said railroad and telegraph line have been completed and

equipped in all respects as required by this act, then, upon certificate of said

commissioners to that effect, patents shall issue conveying the right and title to

said lands to said company, on each side of the road as far as the same is

completed, to the amount aforesaid; and patents shall in like manner issue as

each forty miles of said railroad and telegraph line are completed, upon

certificate of said commissioners. . . . Provided, however , that no such

commissioners shall be appointed by the President of the United States unlessthere shall be presented to him a statement, verified on oath by the president of

said company, that such forty miles have been completed in the manner

required by this act, and setting forth with certainty the points where such forty


10/32

miles begin and where the same end, which oath shall be taken before a judge

of a court of record.'

88 By the act of 1864 (13 Stat. 356), the amount and extent of the grant is

doubled.

89 Again, by the fifth section of the act of 1862 it is enacted as follows:——

90 'SECT. 5. That, for the purposes herein mentioned, the Secretary of the

Treasury shall, upon the certificate in writing of said commissioners of the

completion and equipment of forty consecutive miles of said railroad and

telegraph, in accordance with the provisions of this act, issue to said company

bonds of the United States of $1,000 each, payable in thirty years after date,

bearing six per centum per annum interest, . . . to the amount of sixteen of said bonds per mile for each section of forty miles, and to secure the repayment to

the United States, as hereinafter provided, of the amount of said bonds so

issued and delivered to said company, together with all interest thereon which

shall have been paid by the United States, the issue of said bonds and delivery

to the company shall ipso facto constitute a first mortgage on the whole line of

the railroad and telegraph, together with the rolling-stock, fixtures, and property

of every kind and description, and in consideration of which said bonds may be

issued.'

91 By the eleventh section the amount of bonds granted was to be $48,000 per

mile for one hundred and fifty miles through the Rocky Mountains, and for the

same distance including the Sierra Nevada Mountains, and $32,000 per mile

between those points; and by the act of 1864 the completed sections were

reduced to twenty miles instead of forty.

92 By the sixth section of the act it is further enacted as follows:——

93 'SECT. 6. That the grants aforesaid are made upon condition that said company

shall pay said bonds at maturity, and shall keep said railroad and telegraph line

in repair and use, and shall at all times transmit despatches over said telegraph

line, and transport mails, troops and munitions of war, supplies and public

stores, upon said railroad for the government whenever required to do so by any

department thereof, and that the government shall at all times have the

preference in the use of the same for all the purposes aforesaid (at fair andreasonable rates of compensation, not to exceed the amounts paid by private

parties for the same kind of service), and all compensation for services

rendered for the government shall be applied to the payment of said bonds and


11/32

interest until the whole amount is fully paid. Said company may also pay the

United States, wholly or in part, in the same or other bonds, treasury notes, or

other evidences of debt against the United States, to be allowed at par, and after

said road is completed, until said bonds and interest are paid, at least five per

centum of the net earnings of said road shall also be annually applied to the

payment thereof .'

94 Reading these sections together, it seems hardly possible to conceive that the

word 'completed,' in the last clause of the sixth section, has any other or

different meaning from that which it has in the fourth and fifth sections; or that

the five per cent of the net earnings should not be demandable by the

government as soon as the whole line was completed in the same manner in

which any forty [or twenty] miles was to be completed in order to entitle the

company to bonds. This conclusion is so obvious and self-evident that it hardly

needs a word of argument to maintain it.

95 Now, the findings of fact show that the company began to claim the subsidy of

lands and bonds for completed sections of the railroad and telegraph line in

June, 1866; and from that time forward made similar successive applications

nearly or quite every month, tendering the affidavit of the president of the

company as to the completion of the several sections, as required by the act.

The first of these affidavits was made on the 25th of June, 1866, and was in the

words following:——

96 'John A. Dix, being duly sworn, deposeth and saith, that he is president of the

Union Pacific Railroad Company, and in pursuance of the requirements of sect.

4 of the act of Congress approved July 1, 1862, entitled 'An Act to aid in the

construction of the railroad and telegraph line from the Missouri River to the

Pacific Ocean,' &c., he now states, under oath, that one hundred and five

consecutive miles of said railroad, beginning at Omaha and ending at a point

one hundred and five miles westward thereof, on the line designated by themaps of said company on file in the Department of the Interior, have been

completed and equipped in all respects as required by the act referred to, as he

is informed by the engineer charged with the construction of said line, and as

he verily believes to be true; and he further states, under oath, that one hundred

and five miles of telegraph have been completed for the said one hundred and

five consecutive miles, as he is also advised by the engineer in charge.

97 'JOHN A. DIX, President .

98 'Sworn to, June 25, 1866.'


12/32

99 The last affidavit, relating to the completion of the last section of the road (and

indeed extending some fifty miles beyond the point of division finally agreed

upon between the Union and Central Pacific Railroad Companies), was made

on the 13th of May, 1869, and was in the words following:——

100 'Oliver Ames, being duly sworn, deposeth and saith that he is president of the

Union Pacific Railroad. And in pursuance of the requirements of sect. 4 of theact of Congress approved July 1, 1862, entitled 'An Act to aid in the

construction of a railroad and telegraph line from the Missouri River to the

Pacific Ocean,' &c., he now states, under oath, that another section of eighty-

six miles, commencing at 1,000 mile and ending at 1,086 mile-post, was

completed on the tenth day of May, 1869, making in all 1,086 consecutive

miles of said road, beginning at the initial point on section 10, opposite western

boundary of the State of Iowa, as fixed by the President of the United States,

and ending at a point 1,086 miles westward therefrom on the line designated bythe maps of said company on file in the Department of the Interior, that have

been completed and equipped in all respects as required by the act referred to,

as he is informed by the engineer charged with the construction of said line,

and as he verily believes to be true. And he further states, under oath, that 1,086

miles of telegraph have been completed for the said 1,086 consecutive miles, as

he is also advised by the engineer in charge.

101 'OLIVER AMES,

102 ' President Union Pacific Railroad Company.

103 'Sworn to, May 13, 1869.'

104 The Court of Claims finds as a matter of fact that 'on the 10th of May, 1869, the

last rail of the claimant's road was laid, and about a week afterwards the roadwas opened over the entire length to public use for the transportation of

passengers and freight, and for the service of the government; and this service

was from that time forward performed continuously.'

105 It further found that on the 23d of December, 1865, the President of the United

States, under the authority of sect. 4 of the said act of July 1, 1862, appointed

commissioners to examine and report upon the first section of forty miles of

said road; and some time prior to April 30, 1866, he appointed other commissioners to examine and report upon the second section of twenty-five

miles of said road; and after the making of each of the foregoing affidavits, he

appointed other commissioners to examine the sections of the road as


13/32

successively completed, and report to him in relation thereto. The reports of the

commissioners so appointed were made in the first instance to the Secretary of

the Interior, who transmitted them to the President, who approved the

recommendations of the Secretary of the Interior by writing his approval

thereon. The following is the first letter of the said secretary, with the

President's indorsement thereon:——

106 'DEPARTMENT OF THE INTERIOR,

107 WASHINGTON, D. C., Jan. 24, 1866.

108 'SIR,—I have the honor to submit herewith enclosed, for your action, the report

of the commissioners appointed by you on the 23d December, 1865, to examine

the first section of forty miles of the Union Pacific Railroad, extending westfrom the city of Omaha, Territory of Nebraska. The company authorized to

build this road having, as shown in the report of the commissioners, obligated

itself to remedy, within a reasonable time, the deficiencies in the construction of

said section, I respectfully recommend that the same be accepted, and proper

steps be ordered for the issue of the bonds and land-grants due the company

agreeably to law.

109 'I am, sir, with much respect, your obedient servant,

110 'JAS. HARLAN, Secretary.

111 'THE PRESIDENT.'

112 'EXECUTIVE MANSION, Jan. 24, 1866.

113 'The within recommendations of the Secretary of the Interior are approved, and

the Secretary of the Treasury and himself are hereby directed to carry the same

into effect.

114 'ANDREW JOHNSON.'

115 Similar reports were made by the Secretary of the Interior, as the successive

sections were completed and reported on by the commissioners, down to andincluding the ninth day of February, 1869, and were severally approved by the

President; and the company received the subsidy bonds of the government in

accordance therewith.


14/32

116 As it appeared by the reports of some of the commissioners that the several

sections of road were not, and could not, under the circumstances be, fully

completed up to the ultimate standard of a first-class railroad, though they

might be, and actually were, completed, section by section, so as to admit of

transportation and travel over the same, the railroad company, on the 12th of

February, 1869, being thereto required by the Attorney-General of the United

States, as a guaranty for the ultimate full completion and equipment of the road,executed an agreement of the last-mentioned date to deposit in the Treasury

Department their own first-mortgage bonds (which by the act of July 2, 1864,

they had been authorized to issue, and which were to be preferred to the lien of

the United States) to the amount of $3,000,000, to be held by the government

as security for the completion of the road according to the provisions of the

statutes in that behalf, and until the President, on a proper examination of the

same, should be satisfied that it was so completed. At the same time, the

company also agreed, by way of further security, to leave their land-grants withthe government, without taking out patents for the same, until the President

should be satisfied as aforesaid,—or pro tanto to such extent as he might not be

satisfied.

117 On the 10th of April, 1869, a joint resolution was passed by Congress, by

which, amongst other things, it was declared that the common terminus of the

Union Pacific and the Central Pacific railroads should be at or near Ogden. And

that the President was thereby authorized to appoint a board of eminentcitizens, not exceeding five in number, to examine and report upon the

condition of the two roads (the Union Pacific and the Central Pacific), and what

sum, if any, would be required to complete each of them. And the President

was further authorized and required to withhold from them an amount of

subsidy bonds sufficient to secure the full completion of the roads as first-class

roads, or to receive an equal amount of the first-mortgage bonds of the

companies. A board of five eminent citizens was appointed under this

resolution in the month of August following.

118 In the mean time, two additional reports were made by the Secretary of the

Interior to the President, one on the 27th of May, 1869, and the other on the

15th of July, 1869, in each case recommending the acceptance of the sections

referred to therein, and also recommending the issue of bonds therefor, in

accordance with the agreement aforesaid, to the effect that the company should

deposit its first-mortgage bonds with the Secretary of the Treasury to such

amount as might be deemed necessary to secure the ultimate completion of theroad.

119 The last of these reports, with the President's indorsement thereon, is in the


15/32

words following, to wit:——

120 'DEPARTMENT OF THE INTERIOR,

121 WASHINGTON, D. C., July 15, 1869.

122 'Sir,—I have the honor to transmit herewith, for your action, five reports, dated

the 9th ultimo, of the commissioners, Messrs. Gouverneur K. Warren and

James F. Wilson; also the report of Isaac N. Morris, the other commissioner,

dated May 28, 1869, appointed by you to examine and report upon a section of

85 88/100 miles of the road and telegraph line, constructed by the Union Pacific

Railroad Company, commencing on the road of said company at the 1,000th

mile-post west from Omaha and terminating at the 1,085 88/100 mile-post.

123 'The majority of said commissioners, in their report, represent the said section

of 85 88/100 miles ready for present service, and completed and equipped as a

first-class railroad, and that the telegraph line is completed for the same

distance; and as the company have paid the per diem and mileage due them

under the twenty-first section of the act of Congress approved July 27, 1866, on

account of their examination of said section of road and telegraph line, I

therefore respectfully recommend the acceptance of the same and the issue of

bonds and of patents for land due on account of said section, agreeably to theact approved July 1, 1862, entitled 'An Act to aid in the construction of a

railroad and telegraph line from the Missouri River to the Pacific Ocean, and to

secure to the government the use of the same for postal, military, and other

purposes,' and the acts amendatory thereof. Said bonds and patents to be issued

to the Union Pacific Railroad Company on account of the work from said

1,000th mile-post to the 'common terminus of the Union Pacific and Central

Pacific Railroads,' 'at or near Ogden;' and the bonds and patents on account of

said work from said common terminus to Promontory Summit to be issued to

such company as the proper authority, after full investigation of the respective

claims of the Union Pacific Railroad Company and the Central Pacific Railroad

Company of California shall determine to be thereunto lawfully entitled:

Provided, however , that no bonds or patents shall in any event be issued until

such security shall be deposited with the Secretary of the Treasury necessary to

secure the ultimate completion of the road, agreeably to the acts mentioned in

my letter to you of the 27th of May last.

124 'I am, sir, very respectfully, your obedient servant,

125 'J. D. COX, Secretary.


16/32

126'THE PRESIDENT.'

127 'EXECUTIVE MANSION, July 15, 1869.

128 'The within recommendations of the Secretary of the Interior are approved, and

the Secretary of the Treasury and himself are hereby directed to carry the same

into effect.

129 'U. S. GRANT.'

130 It is found by the Court of Claims that on the 22d of July, 1869, in partial

performance of this last order of the President, $640,000 of subsidy bonds were

issued to the company, being the subsidy for the section of twenty miles

extending from the 1,000th to the 1,020th mile from Omaha, the subsidy bondson all the previous sections having been received by the company before that

time.

131 As before stated, in August, 1869, the President, in accordance with the joint

resolution of April 10, 1869, appointed a board of five eminent citizens, to

examine and report upon the condition of the road, and what sum would be

required to complete it as a first-class railroad. This board made a detailed

examination, and on the 30th of October, 1869, made an elaborate report,specifying a number of particular things at various points, such as ballasting,

embankment, masonry, trestle-work, &c., which required perfecting to put the

road in first-class condition; estimating the aggregate expense of such

improvements on the whole line from Omaha to Ogden at $1,586,100. They

conclude their report as follows: 'This great line, the value of which to the

country is inestimable, and in which every citizen should feel a pride, has been

built in about half the time allowed by Congress, and is now a good and

reliable means of communication between Omaha and Sacramento, wellequipped, and fully prepared to carry passengers and freight with safety and

despatch, comparing in this respect favorably with a majority of the first-class

roads in the United States.'

132 This report being made and accepted, on the 3d of November, 1869, the

Secretary of the Interior issued directions to the Commissioner of the General

Land-Office to commence patenting lands to the companies, and to issue

patents for one half of the lands which they were to receive,—the patents for the other half to be suspended until further directions, in addition to the bonds

retained, as security for the completion of the roads in the matters reported

deficient or not up to the standard by the said committee.


17/32

133 Up to the 6th of November, 1869, the point at which the Union Pacific and

Central Pacific roads should meet was not settled; but assuming that the former

would go no further west than Ogden, 1,033 68/100 miles from Omaha, the

Secretary of the Treasury on that day ordered that bonds at the rate of $32,000

per mile for the distance of 13 68/100 miles from the 1,020th mile-post to

Ogden should be issued, but ordered that the register of the treasury should

hold $323,488 thereof as security for the over-issue of first-mortgage bonds bythe company, and deliver the balance to it. The reason of withholding these

bonds was, that the company, having been authorized by the act of July 2,

1864, supplementary to its charter, to issue the same amount of first-mortgage

bonds as it was entitled to receive from the government, and which was

accorded a priority over the lien of the government bonds, and having actually

constructed the road fifty-three miles west of Ogden, had issued a larger

amount of its own bonds than the amount of subsidy to which it was entitled as

the point of division between its road and that of the Central Pacific was finallysettled. By a subsequent arrangement with the Central Pacific Railroad

Company, the point of junction between the two roads was fixed at a point five

miles west of Ogden, which entitled the Union Pacific Company to bonds for

such five additional miles, amounting to $160,000, which it received in July,

1870, making the total amount of subsidy bonds which it was entitled to, and

did receive, the sum of $27,235,760.

134 It thus appears that prior to the sixth day of November, 1869, the entire road of the company had, in separate sections, been reported by it, under the oath of its

president, as being completed and furnished as a first-class railroad, in

accordance with the requirements of the act, and that upon the strength of these

representations, and the corresponding reports of the commissioners appointed

to examine the several sections, it had been accepted by the President; and that

the company, with the exception of the last $160,000 of bonds, the claim to

which arose from a mutual arrangement between the two companies, had

received its entire subsidy of government bonds; and had received an order for the issuing of patents for its grant of public lands to the extent of one half

thereof; the patents for the other half being suspended, by virtue of the

agreement made in April, 1869, as security for the more perfect completion of

certain parts of the work.

135 It is urged that the acceptance of the road by the President up to this period was

only provisional, and not final. We cannot perceive that this makes any

difference. It was an acceptance by which the company was enabled to receiveits subsidy of government bonds; and was sought by it in order that it might

obtain them.


18/32

136 It seems to us unnecessary to look further, or to review the subsequent

proceedings which took place between the President and the company, in

reference to the fulfilment of the conditions by the latter, on which the issue of

the patents for the remaining lands depended. It appears that another

commission was appointed to examine the road in 1874, and that, on their

report, the President was satisfied that all the imperfections, as a security for

the removal of which any patents had been suspended, were removed. The

company insists that this was the period which should be taken for the

completion of the road in reference to the payment of five per cent of its net

earnings,—a period five years after it had reported the last section completed

according to the act of Congress, and after the President, by virtue of the

agreement aforesaid, had consented to accept it as completed for the purpose of

enabling the company to draw its subsidy of government bonds, and after it had

received said bonds.

137 Can a stronger case of estoppel than this well be presented? The plea that the

government still retained a portion of the public lands which the company was

to receive, as security for the supply of certain deficiencies in the road, cannot

avail to diminish the strength of the estoppel. This was done by the voluntary

agreement of the company itself. And as, by making this concession, it

succeeded in obtaining the formal acceptance of its road for the sake of the

benefit to accrue therefrom, to wit, the procurement of the subsidy bonds, the

company ought to be willing to bear the burden of such acceptance, to wit, the payment annually of five per cent of the net earnings of the road on account of

the bonds. It would be an unfair construction of the acts of the parties under the

law, to hold that the road was completed for one purpose and not for the other.

We think, therefore, that the Court of Claims was right in deciding that the road

was completed on the sixth day of November, 1869, so far as the duty of the

company to account for five per cent of its net earnings is concerned.

138 II. The question next arising is, What are the 'net earnings' for five per cent of

which the company became liable to account, and in what manner are they

payable?

139 In the first place, they are the 'net earnings of the road;' that is, the net earnings

of the road as a railroad, including the telegraph. They have nothing to do with

the income or profits of the company as a holder of public lands. The proceeds

of this source of income are no part of the earnings of the road. These earnings,however, must be regarded as embracing all the earnings and income derived

by the company from the railroad proper, and all the appendages and

appurtenances thereof, including its ferry and bridge at Omaha, its cars, and all


19/32

its property and apparatus legitimately connected with its railroad.

140 In the present case, but little difficulty is presented in determining what are the

proper earnings of the road, except in one particular. The company insists that

the compensation accruing to it for services performed for the government,

under the sixth section of the act of 1862, should not be estimated amongst the

earnings of the road, in taking an account of net earnings upon which tocalculate the five per cent in question. That compensation is not receivable by

the company,—does not come into its hands,—at least was not receivable by it

according to the act of 1862, but was directed by the sixth section to be applied

to the payment of the subsidy bonds. After giving this direction, the section

proceeds to add, that after the road is completed, 'until said bonds and interest

are paid, five per centum of the net earnings of said road shall also be annually

applied to the payment thereof.' It is contended that the net earnings here

referred to are intended to be exclusive of said compensation for governmentservice, no part of which the company was to receive. It must be admitted that

there is some force in this view. But the majority of the court is of opinion that

the plain letter of the statute cannot be thus varied by construction. The

compensation accruing by means of services performed for the government is

unquestionably earnings of the road and telegraph; and as there are no words in

the act which go to show any intention to except this portion of earnings from

the other earnings of the road in estimating the amount of net earnings, the

conclusion arrived at is, that no such exception can be made. The fact that by asubsequent law the company is allowed to receive in money one-half of the

compensation referred to, removes to a great extent the practical difficulties that

have been suggested in this behalf.

141 There is another item in the table of earnings set forth in the eighteenth finding

of the Court of Claims which may require consideration. We refer to the

seventh item, entitled 'company freight.' If this means freight for the

transportation of the company's own property over its own road, it ought not to be put down as a receipt, unless the same amount is also embraced amongst the

expenses on the other side of the account. How this fact may be we have not

before us the means of knowing. The evidence which the Court of Claims has

in its possession will enable it to determine this matter. We merely decide that

if the item appears only as a receipt or earning, and is of the character we have

supposed, it ought to be excluded from the account.

142 Having considered the question of receipts or earnings, the next thing in order is the expenditures which are properly chargeable against the gross earning in

order to arrive at the 'net earnings,' as this expression is to be understood within

the meaning of the act. As a general proposition, net earnings are the excess of


20/32

the gross earnings over the expenditures defrayed in producing them, aside

from, and exclusive of, the expenditure of capital laid out in constructing and

equipping the works themselves. It may often be difficult to draw a precise line

between expenditures for construction, and the ordinary expenses incident to

operating and maintaining the road and works of a railroad company.

Theoretically, the expenses chargeable to earnings include the general expenses

of keeping up the organization of the company, and all expenses incurred inoperating the works and keeping them in good condition and repair; whilst

expenses chargeable to capital include those which are incurred in the original

construction of the works, and in the subsequent enlargement and improvement

thereof. With regard to the last-mentioned class of expenditures, however,

namely, those which are incurred in enlarging and improving the works, a

difference of practice prevails amongst railroad companies. Some charge to

construction account every item of expense, and every part and portion of every

item, which goes to make the road, or any of its appurtenances or equipments, better than they were before; whilst others charge to ordinary expense account,

and against earnings, whatever is taken for these purposes from the earnings,

and is not raised upon bonds or issues of stock. The latter method is deemed the

most conservative and beneficial for the company, and operates as a restraint

against injudicious dividends and the accumulation of a heavy indebtedness.

The temptation is, to make expenses appear as small as possible, so as to have a

large apparent surplus to divide. But it is not regarded as the wisest and most

prudent method. The question is one of policy, which is usually left to thediscretion of the directors. There is but little danger that any board will cause a

very large or undue portion of their earnings to be absorbed in permanent

improvements. The practice will only extend to those which may be required

from time to time by the gradual increase of the company's traffic, the despatch

of business, the public accommodation, and the general permanency and

completeness of the works. When any important improvement is needed, such

as an additional tract, or any other matter which involves a large outlay of

money, the owners of the road will hardly forego the entire suspension of

dividends in order to raise the requisite funds for those purposes; but will rather

take the ordinary course of issuing bonds or additional stock. But for making all

ordinary improvements, as well as repairs, it is better for the stockholders, and

all those who are interested in the prosperity of the enterprise, that a portion of

the earnings should be employed. We think that the true interest of the

government, in this case, is the same as that of the stockholders; and will be

subserved by encouraging a liberal application of the earnings to the

improvement of the words. It is better for the ultimate security of the

government in reference to the payment of its loan, as well as for the service

which it may require in the transportation of its property and mails, that a

hundred dollars should be spent in improving the works, than that it should

receive five dollars towards the payment of its subsidy. If the five per cent of


21/32

net earnings, demandable from the company, amounted to a new indebtedness,

not due before, like a rent accruing upon a lease, a more rigid rule might be

insisted on. But it is not so; the amount of the indebtedness is fixed and

unchangeable. The amount of the five per cent and its receipt at one time or

another is simply a question of earlier or later payment of a debt already fixed

in amount. If the employment of any earnings of the road in making

improvements lessens the amount of net earnings, the government loses nothingthereby. The only result is, that a less amount is presently paid on its debt;

whilst the general security for the whole debt is largely increased.

143 We are disposed to agree, therefore, with the judge who delivered the

concurring opinion in the court below, that the twenty-seventh item of

expenditure, as stated in the table of expenses in the eighteenth finding, entitled

'expenditures for station buildings, shops, &c.,' is a charge that may properly be

made against earnings, since, as the fact is, such expenditures were actually paid therefrom, and were not carried to capital account. Should the company

ever attempt to make a stock or bond dividend in consideration of such

expenditure, the government would be entitled to demand its due proportion

thereof by way of payment on account of its debt. But as long as such

expenditures are fairly and in good faith charged to account of earnings, we see

no good reason for disallowing the charge.

144 Of course, the allowance of this item will supersede the deduction of fifteen per cent from the seventh item of earnings; which item, however, is subject to the

observations that have already been made upon it.

145 Expenses of the same kind as those included in item 27, which are contained in

other items, and were disallowed by the Court of Claims, are to be allowed in

like manner as those in item 27, including the expenses for issuing bonds.

146 We agree with the Court of Claims in its rejection of the expenditures contained

in items 17 to 30 in the table referred to, excepting item 27. All payments of

interest on the bonded indebtedness of the company should be charged to

capital interest account, and not to current expenditures. Though payable out of

earnings before any dividend can be made to stockholders, they cannot

beducted for the purpose of ascertaining the 'net earnings' of the road, as that

term is to be understood in the sixth section of the act. The bonded debt

incurred for the purpose of construction and equipment is but another form of

capital, analogous to preferred stock; and the interest accruing thereon is in the

nature of a dividend on such capital. It has nothing to do with, and cannot

affect, the amount of the net earnings of the road.


22/32

147 So the expenses of land and town-lot departments, and taxes on lands and town

lots, are expenses properly belonging to the land department of the company's

property. They are entirely distinct from its expenses as a railroad company;

and form no proper charge, in the accounts, against the earnings of the road.

148 The other items disallowed by the court require no particular remark. Their

irrelevancy in the account of net earnings is obvious.

149 III. We have still to consider the manner in which, and the conditions subject to

which, the five per cent of net earnings is payable and demandable.

150 We have seen that by the fifth section of the act of 1862 the issue to the

company of the subsidy bonds was to constitute a first mortgage on the whole

line of the railroad and telegraph, together with the rolling-stock, fixtures, and property of every kind and description, [and]in consideration of which said

bonds should be issued. By the act of July 2, 1864, this priority of the

government claim was relinquished in favor of a certain amount of first-

mortgage bonds which, by that act, the company was authorized to issue. The

provision referred to is contained in the tenth section of the act of 1864, which

is as follows:——

151 'SECT. 10. And be it further enacted, that sect. 5 of said act [of July 1, 1862] beso modified and amended that the Union Pacific Railroad Company, the

Central Pacific Railroad Company, and any other company authorized to

participate in the construction of said road, may, on the completion of each

section of said road, as provided in this act and the act to which this act is an

amendment, issue their first-mortgage bonds on their respective railroad and

telegraph lines to an amount not exceeding the amount of the bonds of the

United States, and of even tenor and date, time of maturity, rate and character

of interest, with the bonds authorized to be issued to said railroad companiesrespectively. And the lien of the United States bonds shall be subordinate to

that of the bonds of any or either of said companies hereby authorized to be

issued on their respective roads, property, and equipments, except as to the

provisions of the sixth section of the act to which this act is an amendment,

relating to the transmission of despatches and the transportation of mails,

troops, munitions of war, supplies, and public stores for the government of the

United States.'

152 It is found by the Court of Claims that the Union Pacific Railroad Company did

issue its first-mortgage bonds as authorized by this section, and to the full

amount allowed thereby. The company contends that the interest of these


23/32

bonds, if not its other interest, should be charged as an expenditure against the

earnings of the road in taking an account of its net earnings, which would

reduce the net earnings of each year by the amount of said interest. We have

already expressed an opinion that this claim cannot be sustained. The interest

on these bonds do not, any more than the interest of any other bonds of the

company, form any proper portion of the expenditures of the road to be

considered in estimating the net earnings mentioned in sect. 6 of the act of 1862.

153 But whilst we decide against the company on this point, we are clearly of

opinion that the annual interest accruing on these particular bonds are to be first

paid out of the net earnings, before the government can demand its five per cent

thereof. We conceive this to be the legitimate effect of the concession by the

government of its priority. It can hardly be pretended that, notwithstanding this

concession, the five per cent to be applied in payment of the government bondsis to be first paid. It seems to us an absurdity to say that these bonds are entitled

to a priority, but that the government must be first paid. This would be to grant

a priority, and, in the same breath, to take it back again. It will not do to say that

both must be paid, if there is not enough to pay both. It is a question between

two parties having a claim against a common fund, and one of them having a

priority over the other.

154 It may, perhaps, be urged that the first-mortgage bondholders have no lien onthe net earnings. But it has the same lien that the government has. Both liens

are coextensive with the whole property of the company, so far at least as

relates to the railroad and telegraph lines and their equipment and all property

appurtenant thereto. There is a direction, it is true, that if the company makes

net earnings, it shall pay five per cent thereof on its debt to the government. But

that direction was contained in the act of 1862; the authority to issue the first-

mortgage bonds, and the concession of priority thereto, was given two years

afterwards, and is the controlling enactment. It cannot be supposed, after thistransaction, that the company is bound to pay the government first, and to allow

the interest on the first-mortgage bonds to go unpaid, or, in order to pay it, to go

out in the money market and make a new loan. Such could never have been the

intention of the law. Not to pay the interest on the first mortgage would expose

the road and works to be seized and sold,—a result, certainly, that could not be

to the interest of the government, when we consider that its entire debt is

postponed to the first mortgage, and would be liable to be lost by such a

proceeding. Borrowing money to pay the interest (if it could be borrowed)would only be to put off the evil day.

155 The interest accruing on the first mortgage is as much payable out of the net


24/32

earnings as the five per cent payable to government is. It is the proper fund out

of which to pay both; and if but one can be paid, the former has the precedence;

or else the whole government debt might be paid to the exclusion of the first

mortgage, which is admitted to have the priority. Such a result would be

manifestly absurd.

156 The truth is, that the provision for paying five per cent of the net earnings onthe subsidy debt was a provision for payment out of a particular fund. If by

voluntary agreement on the part of the government a portion of that fund is

appropriated to another purpose (which we think it is), then the government is

entitled to go against the balance only. The provision created no new obligation

or indebtedness, but only entitled the government to anticipate part payment of

a fixed indebtedness out of a particular fund, if there should be such a fund. If

the fund should not arise, or should be exhausted by claims to which the

government gave priority over its own claim, there would clearly be nothing for the government to demand.

157 It is not like the case of two mortgages, one prior to the other, and both having

claims for interest coming due. In such case, if both claims are not paid, the one

which is not paid becomes a cause of action, and may be put in suit. Here, the

claim of the government is on the fund alone. If that is exhausted by its own

consent, no cause of action arises. There is simply nothing left of the fund to

which it has a right to resort.

158 The government, however, may contend that if there is not a sufficient surplus

of net earnings in one year to pay the five per cent due for that year, it may be

carried over to a succeeding year, and taken out of the surplus thereof. We do

not think that this position is more tenable than the other. Each year is to stand

by itself. If there is a deficit in any year instead of net earnings, such deficit

cannot be carried over into the next year's accounts by the company; and if

there are net earnings which are absorbed by the interest due on the firstmortgage, the claim of five per cent cannot be carried over into the next year by

the government. The one is no more a debt than the other is a credit. The

statute makes the application an annual one. If the year produces net earnings

sufficient for the purpose, the government gets its five per cent; if it does not

produce sufficient, the government does not get its five per cent; and there the

account ends for that year. It was never intended that this account should be

carried on from one year to another.

159 This seems to us to be the fair and reasonable construction of the statutes, and

one that does no injustice to either of the parties. The object of Congress in all

of them was to extend a liberal hand in aid of the enterprise which the company


25/32

undertook to carry out, and not to exact, in addition to the amount of service

which the company was required to perform, the payment of any part of its loan

before maturity, except a small portion of the net earnings of the road which the

company would be presumed to have in its hands. So far as these were

otherwise disposed of by the government's own consent, the application to its

debt must be regarded as intended to be waived.

160 The fact that by the ninth section of the act of March 3, 1871 (16 Stat. 525), the

Secretary of the Treasury is required to pay over in money to the companies

one-half of the compensation for the services performed by them for the United

States, has no bearing on the question now under consideration. The statutes out

of which this question arises were all passed long before, and are to be

construed as if the act of 1871 had never been passed.

161 We may add, in conclusion, that Congress, by the act passed May 7, 1878 (20Stat. 56), supplementary to the acts of 1862 and 1864, has expressly directed

that, in estimating the net earnings of the roads, the interest of the first-

mortgage bonds, as well as the current expenses, is to be deducted from the

gross earnings. Whilst this enactment cannot be invoked as furnishing any

decisive rule for the construction of the statutes under review, it at least shows

that Congress deems the interest of said first-mortgage bonds as fairly entitled

to priority of payment out of the earnings of the road, before the payment of any

portion thereof on the government debt. We think, therefore, that we are justified in supposing that our conclusion is in harmony with the views of the

legislature, as to the justice and right of the case.

162 The conclusions to which we have come on the whole case will require the

following modifications of the decree appealed from:——

163 First , In estimating the amount of gross earnings, no deduction will be made

from the earnings included in items 7 or 12, as set forth in the table contained in

the eighteenth finding of the Court of Claims, unless it be found that item 7,

entitled 'company freight,' is for transporting the company's own property on its

road, and is not balanced by being also contained among the expenditures. If

this be the case, then the whole of item 7 should be struck out.

164 Secondly, In estimating the amount of expenditures to be deducted from gross

earnings, the claimant should be credited with the expenditures contained initem 27 of the table of expenditures, and the other expenses which are

disallowed by the Court of Claims, except items 17 to 26 inclusive, and items

28, 29, and 30, which are properly disallowed.


26/32

165 Thirdly, If with these modifications it should be found that the net earnings, in

any one year, were not more than sufficient to pay the interest on the first-

mortgage bonds accruing in said year, then the company will not be decreed to

pay any portion of the said five per cent of net earnings for that year. But if the

net earnings were more than sufficient to pay said interest, the excess will be

subject, as far as it will go, to the payment of said five per cent; but the

company will not be decreed to pay any more than said excess.

166 The decree will be reversed with instructions to enter a decree in accordance

with this opinion; and it is

167 So ordered .

168 MR. JUSTICE STRONG, with whom concurred MR. JUSTICE HARLAN,dissenting.

169 I concur with the majority of the court in holding that the railroad was

completed, within the meaning of the sixth section of the act of 1862, on the

sixth day of November, 1869. I concur also in the definition of 'net earnings,' as

the term was used in that section. But the majority now express the opinion that

if the net earnings in any one year are not more than sufficient to pay the

interest on the first-mortgage bonds of the company in that year, the UnitedStates is not entitled to any portion of five per cent of those earnings for that

year, though, if they are more than sufficient to pay that interest, the excess or

surplus is subject, so far as it will go, to the payment of the five per cent. This is

substantially holding that the claim of the government to the annual payment of

five per cent of the company's net earnings, after the completion of the road, is

postponed to the annual interest on the first-mortgage bonds. To this I cannot

assent. It is, I think, based upon an entire misconstruction of the acts of

Congress which gave existence to the company, and to which alone we can

look for the contract between it and the government. A very few words will

indicate my opinion, and show the reasons upon which it rests. By the fifth

section of the act of 1862, the Secretary of the Treasury was required to issue to

the company bonds of the United States to an amount therein specified. The

bonds were to be issued as a loan, and the section provided as follows: 'And to

secure the repayment to the United States, as hereinafter provided, of the

amount of said bonds so issued and delivered to said company, together with all

interest thereon which shall have been paid by the United States, the issue of

said bonds and delivery to the company shall, ipso facto, constitute a first

mortgage on the whole line of the railroad and telegraph, together with the

rolling-stock, fixtures, and property of every kind and description, and in

consideration of which said bonds may be issued.' This clause describes the


27/32

lien, and the only lien, reserved by the United States. It covers the railroad and

telegraph, the rolling-stock and fixtures, and property of every kind and

description. It does not cover income from the property, either gross receipts or

net receipts derived from its use, while it remains in the possession of the

company and before any forfeiture for breach of the conditions of the

mortgage. A mortgage of a property is a very different thing from a mortgage of

its income. The mortgagor, so long as he remains in possession, or until actualentry by the mortgagee, may receive the rents and profits to his own use, and is

not accountable for them to the mortgagee. Fitchburg Cotton Manufactory

Corporation v. Melven et al., 15 Mass. 268; Boston Bank v. Reed et al., 8 Pick.

(Mass.) 459. Indeed, it is clear law that a mortgagee has no specific lien upon

the rents and profits of mortgaged premises until condition broken. The Bank of

Ogdensburgh v. Arnold and Others, 5 Paige (N. Y.), 38. I think it very apparent

that in the reservation of the lien Congress did not intend to interfere with or

assert rights over the earnings of the railroad, or to prevent their appropriationto the general uses of the company. They were not intended to be covered by

the lien, or embraced within it. And I am confirmed in this belief by the fact

that immediately following the clause in the fifth section describing the lien, a

right was reserved to the United States to take possession of the road on failure

of the company to redeem the bonds loaned.

170 Assuming that I am correct in this, I pass to the sixth section of the act, which

makes no reference to the lien, though it imposes duties upon the company. Itenacts that the grants aforesaid are made upon condition that said company

shall pay said bonds at maturity, and shall keep said railroad and telegraph in

repair and use, shall transmit despatches at all times over said telegraph line,

and transport mails, troops, &c., for the government when required, giving to

the government the preference in the use of the road and line for all the

purposes aforesaid. The section then declares that all compensation

(subsequently changed to one-half thereof) for services rendered for the

government shall be applied to the payment of the bonds and interest, so asaforesaid named, until the whole amount is fully paid. Then follows the clause

which the United States is seeking in this action to enforce. It is as follows:

'And after said road is completed, until said bonds and interest are paid, at least

five per centum of the net earnings of said road shall also be annually applied to

the payment thereof.' The grants referred to in this section, and declared to be

conditional, are probably those of the right of way and alternate sections of

land given previously in the preceding sections. They can hardly refer to the

loan of bonds. This, however, is not very material. While it is true that thesection refers to payment of the debt due to the United States, it contains no

allusion to the lien for the security of the debt reserved in the fifth section. And

it can hardly be pretended that performance of the duties thereby imposed upon


28/32

the company is secured by the statutory mortgage. The mortgage is not a

security for having the road and telegraph kept in order, nor for the

transmission of despatches, or the transportation for the government, nor for

priority of use by the government, nor for the application to the payment of the

bonds of half the compensation for services to the government. Nor is it any

more a security for the required payment of a percentage of the net earnings.

These duties are secured by the condition attached to the land grants, and by theimplied assumption of the company. They are entirely collateral to the

obligation and lien of the mortgage. They are not a part of it. It is no

uncommon thing that a creditor has several securities for one debt. He may

have a bond and a mortgage to secure its payment; he may have also a

promissory note, or an assignment of stock. Nobody would claim that in such a

case the note and the assignment are included in the lien of the mortgage.

171 Having thus shown, as I think, what the lien of the government was, what itcovered, and what it did not, I pass to the tenth section of the amending act of

1864, by which, as construed by a majority of the court, the claim of the United

States to a percentage annually of the net earnings of the road, is postponed to

the rights of what is called the first mortgage of the company. That section

authorized the company, and other companies, to issue their first-mortgage

bonds on the roads and telegraph lines to an amount not exceeding the bonds of

the United States, and of even tenor and date, time of maturity, rate and

character of interest, with the bonds authorized to be issued to them. It thendeclared thus: 'And the lien of the United States shall be subordinate to that of

the bonds of any or either of said companies hereby authorized to be issued on

their respective roads, property, and equipments, except as to the provisions of

the sixth section of the act to which this act is an amendment, relating to the

transmission of despatches, and the transportation of mails, troops, munitions of

war, supplies, and public stores for the government of the United States.'

172 The first mortgage thus authorized was less comprehensive than the statutorymortgage of the United States. It did not include the lands of the company, nor

any of its property, except the road and the telegraph line. It certainly did not

include the earnings of the company. What, then, was subordinated to it? I

think nothing but the lien of the United States bonds,—that lien which was

reserved in the fifth section of the act of 1862. This is the express language of

the section. Whatever right to the railroad and telegraph line the United States

had by virtue of its mortgage, that right was postponed to the mortgage bonds

authorized by this tenth section, and issued under it. Nothing else was postponed. Subordination of the lien of the United States to the company's first

mortgage could not have the effect of enlarging the operation and scope of that

mortgage and bringing additional subjects within it. Surely it did not make the


29/32

mortgage a lien upon any other property than that which the company was

authorized to mortgage. It did not make it a lien, either prior or subsequent,

upon the lands of the company, or the income or earnings of its road. And as I

think I have shown the duty of the company to apply annually five per cent of

its net earnings, after the completion of its road, to the payment of its debt to

the United States, was collateral to its other obligations,—a cumulative duty,

not embraced in the lien or mortgage reserved by the United States in the fifthsection of the act of 1862,—it cannot be affected by the tenth section of the act

of 1864. Whatever else was postponed, it was not.

173 It has been argued on behalf of the appellant that the exception from the

subordinating clause of those provisions of the sixth section of the act of 1862,

relating to the transmission of despatches, and the transportation of mails,

troops, munitions of war, supplies, and public stores for the government of the

United States, implies that the other provisions of that section, or at least thefive per cent provision, were intended to be subordinated to the lien of the first-

mortgage company bonds. This supposed implication is the principal reason

urged in support of the position taken by a majority of the court. It is, however,

in my judgment, entirely unfounded. The purpose of the exception appears to

me to be very plain. As I have noticed, the section authorized the company to

issue their first-mortgage bonds upon the railroad and the telegraph line, and

enacted that the lien of the United States bonds should be subordinate to the

company's first-mortgage bonds. Subordinate, clearly, only in its effect uponthat which was covered by the company's mortgage, namely, the road and the

telegraph line. But if the company's mortgage was permitted to be without

exception the paramount lien upon the road and telegraph line, the right secured

to the United States by the sixth section of the act of 1862 to the transmission

of despatches, and transportation of the mails, &c., might be totally destroyed

by a foreclosure of the mortgage and a sale under it. To guard against this

possibility was evidently the sole purpose of the exception, and its necessity is

manifest. I repeat, if the company's authorized mortgage on the railroad and thetelegraph line were permitted to be, without restriction, a paramount lien, the

preferential right secured to the United States by the conditions of the sixth

section of the act of 1862—the right to the transmission of despatches and

transportation of mails, stores, munitions of war, &c., in preference to others—

would have been at the mercy of the company's mortgagees. That right of

priority Congress was not willing to endanger. The exception was introduced to

avert the danger of its loss. Congress, in effect, said to the company, 'Though

we agree that your mortgage shall be the first lien upon the road and thetelegraph line, yet no foreclosure of it, no taking possession under it, and no

sale shall interfere with the right of the United States to the transmission of

despatches and to transportation in preference to all others.' To save that right


30/32

------------

5. Fencing 72,763.20 956.50 595.44 ------------ ------------- ---

6. Snow sheds and fences 200,147.90 5,787.67 116,770.54 66,969.23

7. Express outfit 7,136.41 ---------- ----------- ----------- --------- ----------

8. Engineering 13,880.90 11,599.75 8,247.98 102.87 $2,810.17

the exception was necessary. It had reference solely to the operation of the

company's mortgage upon the road , upon which a preferential right to

transportation had been reserved, and to the telegraph line, along which

government despatches were first to be carried. I cannot believe it had any other

purpose or intent, much less that it was intended to operate as a grant, or to

postpone the other rights assured to the United States in the sixth section. The

implication that every duty in that section imposed upon the company, exceptthe one expressly mentioned, was intended to be subordinated to the lien of the

company's bonds is too unreasonable to be accepted, and it will not be claimed.

Yet such must be the extent of the implication, if the exception means what the

majority of the court think it means. If the duty of the company to apply to the

payment of its bonds a percentage of its net earnings annually after the

completion of its road is postponed to the rights of the first-mortgage

bondholders, so is the duty to apply one-half the compensation for services

rendered for the government, and so is the duty to keep the railroad andtelegraph line in repair, by parity of reason. Those rights of the government and

the right to the percentage of the earnings stand alike. They are all reserved by

the tenth section of the act of 1864.

174 My conclusion, therefore, is that nothing in the tenth section of the act of 1864

postpones the right of the government to recover five per cent of the net

earnings of the road before any thing is deducted from those earnings for either

principal or interest of the first-mortgage bonds of the company.

175 It may be that the construction of the acts of Congress for which I contend, if

adopted by the court, would not increase the amount recoverable by the United

States in the present suit, but it may have an important effect on future claims

against the company for the five per cent, and it has upon the claims of the

United States against the other companies to which the sixth section of the act

of 1862 was applicable.


31/32

9. Bridging 124,047.59 11,480.85

10. Car shops and sheds 12,938.08 6,661.86 23,234.63 1,020.26

11. Roadway and truck 64,426.30 31,885.19 16,550.09

12. Hotels 1,548.66

13. Tenements 15,759.26 40,775.37 403.60

14. Coal-sheds 2,905.70 11,006.63

15. Omaha depot buildings 7,821.07 37,255.16

16. Omaha general offices 14,977.95 6,896.46

17. Real estate 12,525.00

18. Laramie rolling-mill 16,550.33

19. Water-works 8,966.12

----------

$896,977.03 $183,906.95 $497,875.85 $156,038.10 $177,124.57 $2,810.17

LESS RECEIPTS AND

EXPENDITURES.

20. Equipment 111,430.40

21. Fencing 298.38

22. Roadway and track 5,626.82

$117,057.22 $298.38

Totals of item No. 27 $896,977.03 $66,849.73 $497,875.85 $155,739.72

,810.17

Items 5, 6, 7, 8, 9, 10, 11, 12, 14, and 15 are not in dispute $2.

Item 1, 'conducting transportation expenses,' is liable to be reduced by the

amounts shown in line 1 of the table below as expended for 'tenement-houses

and hotels,' and by the amounts shown in line 2 as expended for new station-


32/32

buildings; item 2, 'motive-power expenses,' is liable to be reduced by the

amounts shown in line 3 as expended for 'engine-equipment,' and by the

amounts shown in line 4 as expended for 'tanks and water-works;' item 3,

'maintenance of cars expenses,' is liable to be reduced by the amounts shown in

line 5 as expended for 'car-equipment;' and item 4, 'maintenance of way

expenses,' is liable to be reduced by the amounts shown in line 6 as expended

for the 'Laramie rolling-mills,' in case such several and respective outlays areregarded as not

union pacific r. co. v. united states, 99 u.s. 402 (1879)

Documents